Microwave arms race gathers pace

Microwave technology is being revived to meet the demands for ever decreasing latency in financial markets. David Wigan explores recent developments and asks if this is the final frontier in the race to zero latency.

There have been a number of headlines in recent months about
increased competition in exchange traded derivatives, as global
operators look to extend footprints and grab market share.
However, behind the scenes a quieter and more savage war is
being waged, not by exchanges but by those that trade on
them.

The key protagonists on the derivative battlefield are some
proprietary trading firms, hedge funds and banks, which use
algorithms and low-latency connections to outwit their
competitors. While a good strategy is essential, a key
differentiator for these players is speed, and those that price
and execute fastest have the upper hand.

Faster connections between exchanges enable market makers to
set tighter bid/offer spreads than rivals, as well as help
arbitragers find price discrepancies, react to news fastest and
assist traders in locating shallow or fragmented
liquidity.

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